ADOR v. Action Marine, Inc – 6/5/2007

June 15, 2007

Arizona Court of Appeals Division One Holds That A.R.S. § 42-5028 Does Not Extend Personal Liability For Unpaid Corporate Transaction Privilege Taxes to Those Corporate Officers Or Directors Whose Corporate Duties Include Remitting Such Taxes to ADOR.

The Randalls were the officers and directors of Action Marine, Inc., an Arizona corporation that was eventually liquidated after a Chapter 7 bankruptcy. During the bankruptcy proceedings, ADOR requested that Action Marine file returns for the amount it owed in transaction privilege taxes. After the bankruptcy proceeding, ADOR filed a collection action against both Action Marine and the Randalls individually for their corporation’s unpaid transaction privilege taxes. The Randalls argued they could not be held personally liable for these taxes under A.R.S. § 42-5028 (liability imposed on “persons” who fail to remit additional charges collected to cover their anticipated transaction privilege tax liability).

The tax court granted summary judgment in favor of ADOR, holding that the Randalls “as sole owners, officers, and directors of the defunct corporate defendant, are responsible for payment of the subject [tax].” The Randalls unsuccessfully moved for a new trial.

The Court of Appeals, on de novo review, reversed and remanded for further proceedings, framing the issue as whether the term “person,” as defined in A.R.S. § 42-5001(8) and as used in A.R.S. § 42-5028, includes a corporation’s officers or directors. The Court held that “there is no basis to hold that the term ‘person’ . . . encompasses a corporate officer or director, because such officeholders were not listed in A.R.S. § 42-5001(8), and because there is no Arizona statute that places an affirmative obligation on such individuals to pay a corporation’s transaction privilege taxes.”

Chief Judge Weisberg authored the opinion, with Judge Hall, Presiding Judge, and Judge Johnsen concurring.